What You Should Know Before Building a Startup in MENA

What You Should Know Before Building a Startup in MENA

July 4, 2019

The MENA region (Middle East and North Africa) is quickly becoming one of the largest digital consumers’ bases in the world. But does that make it the ideal place to launch a startup? Today, we’ll highlight the challenges entrepreneurs face in the region, and see where the region is headed in the oncoming years in terms of tech trends, regulations, and potential investment sources.

MENA Startups Success Stories

Before selling the company to Uber for $3B, Careem had successfully raised around $770M, most of it from local investors. While this local mobility startup is probably the most notable startup to emerge from the region, there are a number of noteworthy names to list:

Wadi.com: the Amazon-like e-commerce platform reached its highest fundraising round in 2016 with a $67M investment

Starzplay: a Dubai-based video streaming startup, the company raised $125M in funding in 2017, merely two years after launching.

Fetchr: while no stranger to internal company struggles, the mail delivery and logistics company raised $41M in its series B in 2017

You’ll also recognise names like Souq.com (acquired by Amazon), or Property Finder. Other less known MENA companies also secured millions in funding, such as PayTabs, WeGo, Wahed, Vezeeta, and Shedul, amongst others.

The point is: startups can successfully launch and gain traction in MENA. But let’s not gloss over the current challenges.

The Challenges for Current MENA Startups

If you ask local entrepreneurs, the first answer you’ll get is that MENA startups lack from funding options. Business angels are too risk averse and conservative for early stages, tending to lean into more mature organizations, and capital is lacking for infrastructure and tangible assets.

As we’ve seen with the aforementioned success stories, this seems to be a thing of the past. Moreover, many entrepreneurs fail to recognise that the Silicon Valley model of VC funding isn’t always applicable in the rest of the world. For the MENA region, for instance, the Venture Builder model, which we promote at hatch & boost, can produce excellent results, by reducing the impact of failure through idea validation, product-market fit testing, and using a shared pool of resources in different capabilities.

Another perceived obstacle is the lack of talent. In fact, the region is seeing an increase in the number of educated and highly trained computer engineers or software developers. However, the problem is that few of them dream of staying in the region.

Then there is the matter of regulators accepting the disruptive nature of startups. However, Careem certainly seems to have demonstrated the model of innovation in the startup ecosystem, both in terms of job creation, accelerated success and GDP growth.

However, the UAE government has taken the lead in designing new policies to attract talent and entrepreneurs. For instance, the UAE has recently approved 100% foreign ownership in 122 economic activities in 13 different sectors and introduced long-term visas for startups. This allows founders and their families to establish themselves in the UAE for 5 years. MENA governments, in short, will start taking note.

Accelerated, Yet Uneven Growth

In spite of these challenges, the MENA startup ecosystem is growing at an impressive rate. 2018 saw a record number of startup deals in the region. 366 companies were funded, for a total of $893M in investment. This is a 31% increase over the previous year.

In terms of local performance, the UAE still leads the startup revolution, with a 40% growth, followed by Egypt (22%) and Lebanon (10%).

As for verticals, e-commerce had been dethroned by fintech as the prevalent industry for investing. Fintech accounted for 12% of all fundraising deals in 2018, versus 11% for e-commerce.

The MENA Region and Entrepreneurship – What Next?

In many ways, this is still only the beginning for the MENA startup ecosystem. The number of tech hubs is lacking compared to Western – and even some African countries, and successful companies like Careem or Souq.com (acquired by Amazon), are snapped by global giants.

But there is huge amounts of potential. Saudi Arabia boasts the highest global penetration on Twitter and highest consumption of YouTube globally. Demographics point towards a young, connected and tech-savvy population.

The GDPs of Gulf Countries ($1.4T), the Levant ($325B) and North Africa ($700B), when combined, surpass that of countries like India. And while many believe it has mostly stemmed from oil, there is a real drive to look past the dependence on fossil fuels.

As HH Sheikh Mohammed said on Twitter, he will “celebrate when the last barrel of oil is taken from the ground, as it will pave the way for a sustainable economy for future generations”.

With all the signs pointing in the right direction in terms of drive, investment, talent and regulatory support, it would seem the MENA region could provide fertile ground for the next generation of startups.